Pressure mounts on Ford, CEO Fields
Pressure is building on Ford Motor Co. CEO Mark Fields.
Even as the company’s directors are set to hold their monthly meeting ahead of the Blue Oval’s annual shareholders meeting Thursday, a ranking source confirmed Ford executives used a previously scheduled “strategy session” with the board Tuesday to review priorities to boost growth and improve returns.
The moves come as investors show increasing skepticism that Ford’s strategy to fortify its so-called “profit pillars,” to transform its luxury and small-car business and to grow electrification, autonomy and mobility is gaining traction.
As prodigious as Ford’s revenue and profits have been since the end of the Great Recession, they remain tethered to its market-leading pickup and SUV business. Electrification, mobility and autonomy, by contrast, consume capital and executive attention, contributing to neither the top nor the bottom lines.
And as U.S. sales, the engine of Ford’s profitability, slow, the tension between the traditional business and the next-generation autonomy-and-mobility spaces is magnified — and not to the benefit of Ford or its CEO.
The message: The core business that generates automotive revenue and profit shows little prospect for meaningful growth. And the growth business of electrification, mobility and autonomy is contributing scant revenue and even less profitability.
That’s the dilemma facing Fields, named in 2014 to replace legendary CEO Alan Mulally. The multidimensional mobility space is considered the next new-new thing in the auto industry, the most revolutionary change since founder Henry Ford created the moving assembly line. But its growth prospects are uncertain and not likely to be realized in the short term.
“We don’t manage our company on day-to-day” swings in the share price, Fields said last month at the New York Auto Show. “We’re absolutely committed to making sure that we bring value to our shareholders, and we’re just going to stay laser-focused on our strategy of fortifying our profit pillars, transforming the under-performing parts of our business.
“You have to have one foot in today, but also one foot in the future. We are doing that in terms of investments ... so that we have a very healthy core business, and that we’re growing these new revenue opportunities going forward. I think investors understand our strategy.”
The intent of Tuesday’s session is to walk Ford’s directors through the automaker’s priority areas — a process that could prove fraught amid growing signs investors remain underwhelmed with the Blue Oval. First-quarter 2017 profits fell 35 percent compared to the same period a year prior, more than expected.
Shares in Ford, the nation’s No. 2 automaker, are stuck in a narrow trading range, comparatively unmoved by two years of record profitability in 2015 and 2016. On July 13, 2014, Ford shares closed at $17.72; on Tuesday, Ford closed at $11.16, a 37-percent decline.
Worse, electric-car maker Tesla Inc., which lost more than $13,000 on each of the 25,000 cars it delivered in the first quarter, passed Ford in market capitalization in the same quarter. At Tuesday’s close, according to MarketWatch, Ford’s shares are worth $44.32 billion; shares in Tesla are valued at $50.1 billion.
A Ford spokesman declined to discuss this week’s meeting schedules or related issues. In a statement, he wrote: “We do not share details or discussions from our board meetings for competitive reasons. We also are unable to comment on rumors or speculation.”
Ford isn’t the only Detroit automaker beset with impatient shareholders. General Motors Co. shares are trading only slightly higher than its 2010 initial public offering price of $33 a share, despite record earnings since emerging from its historic 2009 bankruptcy.
Greenlight Capital Inc. and its President David Einhorn want GM to create one class of stock to receive dividends and another that would participate in earnings, cash flow and future growth. It’s also seeking to add three board members. GM is opposed to the plan.
The automaker and Greenlight, which owns 52 million shares of GM, have been exchanging proxy jabs and letters to shareholders in recent weeks. GM’s annual shareholders meeting is June 6 in Detroit.
In a note to investors earlier this month, Barclays Capital Inc. said owning automaker stocks is tough given the U.S. cycle concerns. It said Ford’s remaining 2017 earnings estimates are likely “derisked” for now and “it could make Ford a bit more ownable.”
“We remain in the camp that there will be more of a steady erosion within the deeper part of the cycle, with the industry still fine on an absolute basis vs. the more bearish view of imminent danger,” analyst Brian A. Johnson wrote in the note. “Yet fighting against the bears feels like swimming against the current — making it tough to own OEMs in this environment despite fine absolute results and cheap valuation.”
Auto writer Melissa Burden contributed.